Hamad is the owner of an Advertisement Company that has two business segments: Consumer and Commercial. Yet, Mr. Hamad is not satisfied with his...
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Question

Mr. Hamad is the owner of an Advertisement Company that has two business segments: Consumer and Commercial. Yet,

Mr. Hamad is not satisfied with his company's cost allocation (for the two segments). He consulted your group (students of ACCT116 in Qatar University) and discussed what could be done to solve the cost allocation issue. Mr. Hamad shared some financial information from the company's income statement of September 2019 with you:

Sales (Consumer)

$970,000

Sales (Commercial)

580,000

Variable Costs (Consumer)

514,000

Variable Costs (Commercial)

267,000

Traceable fixed Costs (Consumer)

184,000

Traceable fixed Costs (Commercial)

110,000

Mr. Khalfan distributed the common fixed costs as follows: 

Common Fixed Costs (Consumer)

 $186,000

Common Fixed Costs (Commercial)

185,000

 Total

371,000

Mr. Hamad is confused and asks you to identify the problem of the current cost allocation, and about the calculation of some results in a correct manner. He asks you to calculate the contribution margin for each segment, the Segment Margin for each segment as well as the net income of his advertisement company. Based on your results, what may be the area(s) that you should bring to Mr. Hamad's attention?.

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